K-STREET, 10,000 FEET: IRS accountability organization calls for further review of Biden-era “basis shifting” transactions rule for businesses
THE LOWDOWN:
The Washington Reporter exclusively obtained AIA executive director Chuck Flint’s April 30 letter to acting IRS commissioner Michael Faulkender calling on the official to keep up oversight on the agency.
Flint noted the AIA supported the Trump administration’s Notice 2025-23, which proposed regulations to withdraw a Treasury regulation “relating to so-called partnership basis-shifting transactions.”
Flint said his organization believes that “the IRS’s review of Biden administration decisions should continue” and noted that Revenue Ruling 2024-14 “is the next logical target for review and withdrawal.”
Flint said that Revenue Ruling 2024-14 “reflected a dramatic and unsupportable change in policy” in the IRS’s “longstanding application of the economic substance doctrine” and that, after Congress codified the doctrine in 2010, the IRS “correctly recognized that it should apply only where the transaction lacked economic substance and the taxpayer was not permissibly taking advantage of tax incentives adopted by Congress.”
When most Americans hear the name of the Internal Revenue Service (IRS), their minds likely go to President Ronald Reagan’s immortal words: the scariest words in the English language are, “I’m from the government and I’m here to help.”
Those words rang especially true throughout the Biden administration, which sought to scale up the size of government, especially within the IRS. But the size and scope of the IRS is only one half of the issue — and the Alliance for IRS Accountability (AIA) is working to ensure the drumbeat of scrutiny on the Biden administration’s rules keeps going.
The Washington Reporter exclusively obtained AIA executive director Chuck Flint’s April 30 letter to acting IRS commissioner Michael Faulkender calling on the official to keep up oversight on the agency.
Flint noted the AIA supported the Trump administration’s Notice 2025-23, which proposed regulations to withdraw a Treasury regulation “relating to so-called partnership basis-shifting transactions.”
Flint also said that the Department of Treasury and IRS “properly recognized in the notice that these regulations fell squarely within the President’s deregulatory directive to revoke rules that “are based on anything other than the best reading of the underlying statutory authority or prohibition,” or that “impose undue burdens on small business and impede private enterprise and entrepreneurship.”
“As Treasury and the IRS recognized, the Basis Shifting [Transactions of Interest (TOI)] Regulations impose an improper burden on ‘many ordinary-course and tax-compliant business activities, creating costly compliance obligations and uncertainty for businesses,’” Flint wrote. “They were properly targeted for withdrawal.”
Flint said his organization believes that “the IRS’s review of Biden administration decisions should continue” and noted that Revenue Ruling 2024-14 “is the next logical target for review and withdrawal.”
“Revenue Ruling 2024-14 was announced on June 17, 2024, the same day that the IRS proposed the unsupportable regulations targeted by Notice 25-23,” Flint explained. “Revenue Ruling 2024-14 similarly reflected the Biden administration’s effort to target large partnerships and corporations engaged in ordinary course and tax-compliant business activities. That revenue ruling finds that certain partnership transactions involving ‘basis shifting’ lack economic substance under Section 7701(o) of the tax code and thus seeks to disallow the associated tax benefits from those transactions.”
“Yet, Revenue Ruling 2024-14 concedes that the transactions at issue produce real economic gains and that they have a business purpose other than reduction of tax,” Flint added. “There is therefore no legal justification to apply the economic substance doctrine to those transactions.”
Flint said that Revenue Ruling 2024-14 “reflected a dramatic and unsupportable change in policy” in the IRS’s “longstanding application of the economic substance doctrine” and that, after Congress codified the doctrine in 2010, the IRS “correctly recognized that it should apply only where the transaction lacked economic substance and the taxpayer was not permissibly taking advantage of tax incentives adopted by Congress.”
“For these reasons, AIA respectfully requests that Treasury and the IRS complete the job left unfinished by Notice 25-23 and withdraw the equally flawed Revenue Ruling 2024-14,” Flint wrote. “Withdrawing this ruling would further the policies directed by President Trump under Executive Order 14219 and will end the Biden IRS’s unsupportable departure from established principles.”
“In parallel, AIA urges the IRS to freeze all enforcement activity by the unnecessary and duplicative new unit, the Special Pass-Through Workgroup, which audits partnerships and pass-through businesses. The Biden Administration established this pass-through workgroup as part of its effort to target transactions expressly authorized by the text of the Internal Revenue Code on the grounds that they were employed by large partnerships that should be paying more taxes. These pass-through businesses are currently placed on a burdensome, dual-track audit system whereby they are subject to examination by the new pass-through team and by traditional IRS components.”
“Freezing the new pass-through team’s enforcement activity will allow the IRS to examine whether such actions are efficient, a proper allocation of taxpayer resources and lawful. AIA believes that, absent any evidence that pass-through entities are operating unlawfully, the IRS should not be targeting certain taxpayers with unnecessary and costly regulatory burdens.”
The IRS did not respond to a request for comment.